Chapter 21 The Great Depression Begins

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Chapter 21 The Great Depression Begins
Section Notes
Video
The Great Depression Begins
The Great Crash Americans Face Hard Times Hoover
as President
Maps
History Close-up
The Election of 1928 The Dust Bowl
Life in a Hooverville
Quick Facts
Images
Distribution of Wealth, 1929 Causes of the 1929 S
tock Market Crash Economic Impact of the Great De
pression Visual Summary The Great Depression Beg
ins
Fallen on Hard Times The Dust Bowl Relief Line
Japanese American Migrant Workers
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The Great Crash
The Main Idea The stock market crash of 1929 reve
aled weaknesses in the American economy and
trigger a spreading economic crisis.
Reading Focus What economic factors and condi
tions made the American economy appear prosperous
in the 1920s? What were the basic economic weakne
sses in the American economy in the late 1920s?
What events led to the stock market crash of
October 1929? What were the effects of the crash
on the economy of the United States and the world?
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The Appearance of Prosperity

• Strong Economy
• Between 1922 and 1928 the U.S. gross national
  product, or total value of all goods and
  services, rose 40 percent.
  
• Though farmers and some other workers didnt
  benefit, the overall economy performed well,
  especially for automakers and those who made auto
  parts.
• Overall unemployment remained low, averaging
  around five percent between 1923 and 1929.
  
• Union membership slowed as employers expanded
  welfare capitalism programs, or employee
  benefits.
  
• This feeling of prosperity encouraged workers to
  buy new products and enjoy leisure activities
  such as movies.

• Strong Stock Market
• The stock market, where people buy stocks, or
  shares, in companies, performed very well in the
  1920s, with stock values sharply increasing each
  month.
• The value of stocks traded quadrupled over nine
  years.
  
• The steep rise in stock prices made people think
  the market would never drop, and more ordinary
  Americans bought stocks than ever before.
  
• The number of shares traded rose from 318 million
  in 1920 to over 1 billion in 1929.
  
• Business leaders said everyone could get rich
  from stocks.

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High Hopes
Faith in business and government
The election of 1928
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Economic Weaknesses

• While many Americans enjoyed good fortune in the
  1920s, many serious problems bubbled underneath
  the surface.
  
• One problem in the American economy was the
  uneven distribution of wealth during the 1920s.
  
• The wealthiest one percent of the populations
  income grew 75 percent, but the average worker
  saw under a 10 percent gain.
  
• For most Americans, rising prices swallowed up
  any increase in salary.
  
• Coal miners and farmers were very hard hit, but
  by 1929 over 70 percent of U.S. families had too
  low an income for a good standard of living.
  
• Four out of every five families couldnt save any
  money during the so-called boom years.
  
• Credit allowed Americans to buy expensive goods,
  but by the end of the decade many people reached
  their credit limits, and purchases slowed.
  
• Warehouses became filled with goods no one could
  afford to buy.

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Credit and the Stock Market
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The Stock Market Crashes

• The steady growth of the early 1920s gave way to
  astounding gains at the end of the decade until
  its September 3, 1929, peak.
  
• Many people were beginning to see trouble as
  consumer purchasing fell and rumors of a collapse
  circulated.
  
• On Thursday, October 24, 1929, some nervous
  investors began selling their stocks and others
  followed, creating a huge sell-off with no
  buyers.
• Stock prices plunged, triggering an even greater
  panic to sell.
  
• Toward the end of the day, leading bankers joined
  together to buy stocks and prevent a further
  collapse, which stopping the panic through
  Friday.
• But the next Monday the market sank again, and
  Black Tuesday, October 29, was the worst day,
  affecting stocks of even solid companies.
  
• The damage was widespread and catastrophic. In a
  few short days the market had dropped in value by
  about 16 billion, nearly one half of its
  pre-crash value.

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Effects of the Crash

• Impact on Individuals
• Though some thought the market would rally,
  countless individual investors were ruined.
  
• Margin buyers were hit the hardest, because
  brokers demanded they pay back the money they had
  been loaned.
  
• To repay the loans, investors were forced to sell
  their stocks for far less than they had paid, and
  some lost their entire savings making up the
  difference.
• In the end, many investors owed enormous amounts
  of money to their brokers, with no stocks or
  savings left to pay their debts.

• Effects on Banks
• The crash triggered a banking crisis, as
  frightened depositors rushed to withdraw their
  money, draining the bank of funds.
  
• Many banks themselves had invested directly or
  indirectly in the stock market by buying
  companies stocks or by lending brokers money to
  loan to investors on margin.
• When investors couldnt repay margins, banks lost
  money, too.
  
• These failures drove many banks out of business.

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More Effects of the Crash
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Americans Face Hard Times
The Main Idea The Great Depression and the natura
l disaster known as the Dust Bowl produced
economic suffering on a scale the nation had
never seen before. Reading Focus How did the
Great Depression develop? What was the human imp
act of the Great Depression? Why was the Dust Bow
l so devastating?
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Great Depression by the Numbers

• After the stock market crash, economic flaws
  helped the nation sink into the Great Depression,
  the worst economic downturn in history.
  
• The stock market collapse strained the resources
  of banks and many failed, thus creating greater
  anxiety.
  
• In 1929 banks had little cash on hand and were
  vulnerable to runs, or a string of nervous
  depositors withdrawing money.
  
• A run could quickly drain a bank of all its cash
  and force its closure.
  
• In the months after October 1929, bank runs
  struck nationwide and hundreds of banks failed,
  including the enormous Bank of the United
  States.
• Bank closures wiped out billions in savings by
  1933.

Today, insurance from the federal government
protects most peoples deposits, and laws today
require banks to keep a large percentage of their
assets in cash to be paid to depositors upon
request.
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Farm Failures

• The hard times farmers faced got worse during the
  Great Depression, when widespread joblessness and
  poverty cut down on the demand for food as many
  Americans simply went hungry.
• By 1933, with farmers unable to sell food they
  produced, farm prices had sunk to 50 percent of
  their already low 1929 levels.
  
• Lower prices meant lower income for farmers, and
  many borrowed money from banks to pay for land
  and equipment.
  
• As incomes dropped, farmers couldnt pay back
  their loans, and in the first five years of the
  1930s, hundreds of thousands of farms went
  bankrupt or suffered foreclosure.

Foreclosure occurs when a lender takes over
ownership of a property from an owner who has
failed to make loan payments.
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Unemployment

• The year following the crash of October 1929 saw
  a sharp drop in economic activity and a steep
  rise in unemployment.
  
• Such negative trends are not uncommon in times of
  economic downturn, but the extent and duration of
  these trends made the Great Depression
  different.
• By 1933 the gross national product dropped over
  40 percent from its pre-crash levels.
  
• Unemployment reached a staggering 25 percent, and
  among some groups the numbers were even higher
  
• In the African American neighborhood of Harlem,
  for example, unemployment reached 50 percent in
  1932.

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The Human Impact of the Great Depression
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The Emotional Impact of the Depression

• The Great Depressions worst blow might have been
  to the minds and spirits of the American people.
  
• Though many shared the same fate, the unemployed
  often felt that they failed as people.
  
• Accepting handouts deeply troubled many proud
  Americans. Their shame and despair was reflected
  in the high suicide rates of the time.
  
• Anger was another common emotion, because many
  felt the nation had failed the hardworking
  citizens who had helped build it.

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Devastation in the Dust Bowl

• Nature delivered another cruel blow. In 1931 rain
  stopped falling across much of the Great Plains
  region.
  
• This drought, or period of below average
  rainfall, lasted for several years, and millions
  of people had fled the area by the time it
  lifted.
• Agricultural practices in the 1930s left the area
  vulnerable to droughts.
  
• Land once covered with protective grasses was now
  bare, with no vegetation to hold the soil in
  place.
  
• When wind storms came, they stripped the rich
  topsoil and blew it hundreds of miles. The dust
  sometimes flew as far as the Atlantic Coast.
  
• Dust mounds choked crops and buried farm
  equipment, and dust blew into windows and under
  doors.
  
• The storms came year after year, and the hardest
  hit areas of Oklahoma, Kansas, Colorado, New
  Mexico, and Texas eventually became known as the
  Dust Bowl.

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Fleeing the Plains
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Hoover as President
The Main Idea Herbert Hoover came to office with
a clear philosophy of government, but the events
of the Great Depression overwhelmed his
responses. Reading Focus What was President
Hoovers basic philosophy about the proper role
of government? What actions did Hoover take in re
sponse to the Great Depression?
How did the nation respond to Hoovers efforts?
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Hoovers Philosophy

• Herbert Hoover came to the presidency with a core
  set of beliefs he had formed over a long career
  in business and government service.
  
• He had served in the Harding and Coolidge
  administrations and shared many of their ideas
  about governments role in business, favoring as
  little government intervention as possible.
• Hoover believed unnecessary government threatened
  prosperity and the spirit of the American
  people.
  
• A key part of this spirit was something he called
  rugged individualism.

Hoover didnt reject government oversight or
regulation of certain businesses or think
businesses should do exactly as they pleased, but
he thought it was important not to destroy
peoples belief in their own responsibility and
power.
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The Associative State
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Hoovers Response to the Great Depression
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The Smoot-Hawley Tariff Act
The Act
The Effects
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The Nation Responds to Hoover

• Questions of Credibility
• Hoover eventually saw the limitations of his
  ideals and pushed for some direct relief, but his
  optimistic claims about the economy undermined
  his credibility with voters.
• Early on, when millions lost their jobs, he said
  the nations basic economic foundation was
  sound.
  
• Just a few months after the crash he announced I
  am convinced we have passed the worst, and he
  spoke glowingly about the relief efforts.
  
• Millions of Americans did not share Hoovers
  viewpoint.

• Questions of Compassion
• Many Americans came to question Hoovers
  compassion.
  
• As economic conditions grew worse, his
  unwillingness to consider giving direct relief to
  the people became hard for most Americans to
  understand.
• When Hoover finally broke his stated beliefs and
  pushed for programs like the Reconstruction
  Finance Corporation, people wondered why he was
  willing to give billions of dollars to banks and
  businesses but not to individuals.

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The Bonus Marchers

• In May 1932 some World War I veterans set up camp
  near the capital.
  
• The men were in Washington to pressure the
  federal government to pay a veterans bonusa
  cash award they were promised for their war
  service.
• The bonus was not due for many years, but the men
  needed the money.
  
• Congress refused to meet the demands of these
  bonus marchers, and some left. A core group
  remained, including women and children.
  
• In July, as police and U.S. soldiers began
  clearing the area of veterans, violence erupted
  and the camp went up in flames, injuring
  hundreds.
• Hoover did not want to pay the bonus because he
  was concerned about balancing the budget.
  However, many Americans were greatly disturbed by
  the sight of soldiers using weapons against
  homeless veterans.
• The publics opinion of Hoover fell even more.

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The Voters React

• Trying to balance the budget, Hoover pushed for
  and signed a large tax increase in 1932.
  
• This move was highly unpopular, because voters
  wanted more government spending to aid the poor.
  
• The 1930 Congressional election provided early
  signs that the public was fed up with President
  Hoover.
  
• Democrats finally won the majority of seats in
  the House of Representatives and made gains in
  the Senate.
  
• By the 1932 presidential election, it seemed
  certain Hoover would lose the race.
  
• The Great Depression showed few signs of ending,
  and Hoovers ability to influence people and
  events was nearly gone.
  

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